Free CFA Level 2 Mock Exams: Practice Questions

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If you are one of the candidates of CFA Level 2, you will need lots of practice questions to pass one of the more challenging CFA levels. Below are free CFA Level 2 mock exam for more practice. It is 2 hour 12 minutes long. It consists of a 44 questions practice exam. Rather than independent question-bank-type questions, it is a proper mock exam because it uses the item-set and vignette format that is the same as the real exam.

Feel free to take the CFA Level 2 mock exam test online or download the PDF questions. Make sure to submit your answers online. Check question 1-6 relate to Ethical and Professional Standards below:

Alpine Investment Case Scenario

Selina Sharma, CFA, is a portfolio manager at Alpine Investments with discretionary authority over her clients’ portfolios. As per Alpine’s policy, she reviews the investment policy statements of her clients annually. Sometimes changes in clients’ circumstances or in capital market expectations dictate more frequent reviews. She updates the investors’ IPS to reflect changes in circumstances and capital market expectations.

Caleb Jones, a former business colleague of Sharma, is the Chief Investment Officer (CIO) of Chrome Manufacturing Company (CMC) and an Alpine client. Jones has been very helpful to Sharma by providing her with information on attractive stocks in the manufacturing industry.

Sharma has capitalized on this information for her clients’ portfolios and her personal portfolio.

She has more than once purchased stocks of the companies recommended by Jones for her own account prior to placing a purchase order for her clients which has resulted in her personal portfolio showing a better performance than her other portfolios.

At one of their lunch meetings, Jones informs Sharma that he will be leaving CMC and joining a competitor firm, AID, where he will receive a generous package including stock options in the company. “Because of this increased wealth, I feel I can take additional risk and become more aggressive with my asset allocation.” Jones then proceeds to discuss the various aspects of the change in his financial situation, risk tolerance, and financial objectives. Sharma agrees to modify his IPS to reflect the change in his circumstances. As he is leaving, Jones asks Sharma about one of her clients. “I believe your firm manages the ABC Pension Fund. Perhaps you can share with me its asset allocations.” Sharma responds, “The pension fund is indeed managed by Alpine and it is aggressive in its allocations.” She however, refrains from telling him that she is no longer the portfolio manager and the fund is undergoing a change in its investment policy.

A month later, Sharma reads a report by an Alpine analyst on a small biotechnology firm with a promising outlook. Based on the report’s extensive analysis and buy recommendation, she feels that it would be a suitable investment for Jones’ account under his new IPS, and two other accounts with objectives and constraints similar to Jones. Sharma places a buy order of equal amount for two of her clients including Jones, and doesn’t purchase shares for her third client since his account does not have cash available and his existing assets meet his investment objectives, hence selling them will not be prudent. Sharma calls Jones to discuss the stock in more detail. Jones is not satisfied and retorts, “I’m not comfortable with some of your recent stock picks. Maybe it is time that I change my money manager.” In order to pacify Jones, Sharma responds, “Our firm has just received notification of our allocation in a hot new issue. I will make sure that you receive a significant allocation since the investment matches with your new investment profile. You will lose out on this lucrative investment by moving your account elsewhere.”

  1. Is Alpine’s policy of updating the IPS consistent with required and recommended CFA Institute Standards?
    A. Yes.
    B. No, update is only when there is a change in investor constraints.
    C. No, update is only when the performance benchmarks are not met.
  2. Does Sharma violate any CFA Institute Standards by trading for her personal account prior to her clients’ trades?
    A. Yes, relating to conflicts of interest.
    B. Yes, relating to fair dealing.
    C. No.
  3. When discussing the ABC Pension Fund, does Sharma violate any CFA Institute Standards?
    A. Yes, relating to misrepresentation.
    B. No.
    C. Yes, relating to duties to clients.
  4. Does Sharma violate any CFA Institute Standards when she places a buy order for shares in the biotechnology firm for two of her clients’ accounts?
    A. Yes, relating to fair dealing.
    B. No.
    C. Yes, relating to diligence and reasonable basis.
  5. Is Alpine’s IPO policy with respect to trade allocations of new shares consistent with the CFA Institute Standards?
    A. Yes.
    B. No, because the different fees disadvantage certain clients.
    C. No, because the IPO policy disadvantages certain clients.
  6. Does Sharma violate any CFA Institute Standards in her allocation of IPO shares to her clients’ accounts?
    A. No.
    B. Yes, because she does not treat all her clients fairly.
    C. Yes, because the IPO is not suitable for Jones.
  7. Given a bid-side quote on the three-month forward contract of AUD1.3028 per U.S. dollar, the three-month forward U.S. dollar is quoted at an annualized:
    A. 0.28% discount.
    B. 0.28% premium.
    C. 0.36% premium.
  8. Using Exhibit 1, according to the international Fisher effect, Spalding should most likely increase holdings in:
    A. Australia.
    B. China.
    C. neither countries.
  9. If a dealer’s bid-side quote for the Australian Dollar/Chinese Yuan is AUD 0.2020, Spalding’s profit on a USD 1,000,000 initial investment in the triangular arbitrage opportunity is closest to:
    A. USD 12,278.
    B. USD 21,269.
    C. USD 19,270.
  10. The specific parity condition referred to by Spalding is most likely the:
    A. covered interest rate parity.
    B. ex ante PPP.
    C. uncovered interest rate parity
  11. Regarding Dimon’s proposed changes to the incentive plan, which of the following statements is most accurate?
    A. By introducing SARs, the downside risk becomes unlimited.
    B. The proposed performance metrics can increase the chances of financial information manipulation by management.
    C. The option pricing model is not required to determine the compensation expense.
  12. Based on Exhibit 1, which change in assumptions will most likely result in an increase in compensation expense?
    A. The change in the risk-free rate.
    B. The change in volatility.
    C. The change in dividend yield.
  13. The portion of the compensation expense related to the stock option component awarded in 2016 is closest to:
    A. USD 317,200.
    B. USD 487,300.
    C. USD 178,200.
  14. The poor investment performance most likely caused the periodic pension cost (in $-millions) reported in the 2016 income statement (assuming no amortization of past service costs or actuarial losses) to be:
    A. unaffected.
    B. higher by $74.80 million.
    C. higher by $340 million.

Go to to find the other questions. After submitting your answers, you will instantly be sent a personalized report giving you your score. Not only that, you will also be given a detailed answer with explanations and a comparison of your performance to the rest of the candidate population.

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